NATIONAL MEDIA CORP
10-Q, 1998-08-14
CATALOG & MAIL-ORDER HOUSES
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<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

/X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the period ended June 30, 1998

                                       OR

/_/  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from ____ to ____ .

                          Commission file number 1-6715

                           NATIONAL MEDIA CORPORATION
     ----------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


                Delaware                                13-2658741
- ------------------------------------------  ------------------------------------
(State or Jurisdiction of Incorporation or  (I.R.S. Employer Identification No.)
            Organization)


                               Eleven Penn Center
                         1835 Market Street, Suite 1100
                             Philadelphia, PA 19103
     ----------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)


Registrant's Telephone Number, Including Area Code:  (215) 988-4600

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes    /X/          No     / /

There were 25,453,752 issued and outstanding shares of the registrant's common
stock, par value $.01 per share, at July 31, 1998. In addition, there were
887,229 shares of treasury stock as of such date.


<PAGE>


                           NATIONAL MEDIA CORPORATION
                                AND SUBSIDIARIES

                                     INDEX


<TABLE>
<CAPTION>
                                                                                                                 Page
                                                                                                                 ----

<S>                                                                                                              <C>
Facing Sheet .....................................................................................................1

Index.............................................................................................................2

Part I.  Financial Information

         Item 1.  Financial Statements (unaudited)
                  Condensed Consolidated Balance Sheets at June 30, 1998 and March 31, 1998.......................3

                  Condensed Consolidated Statements of Operations
                    Three months ended June 30, 1998 and June 30, 1997............................................4

                  Condensed Consolidated Statements of Cash Flows
                    Three months ended June 30, 1998 and June 30, 1997............................................5

                  Notes to Condensed Consolidated Financial Statements............................................6

         Item 2.  Management's Discussion and Analysis of
                    Financial Condition and Results of Operations................................................11

Part II. Other Information

         Item 1.  Legal Proceedings .............................................................................18

         Item 6.  Exhibits and Reports on Form 8-K...............................................................18

Signatures.......................................................................................................19
</TABLE>

                                       2
<PAGE>


Part I.  Financial Information

Item 1.  Financial Statements (Unaudited)

                           NATIONAL MEDIA CORPORATION
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
          (In thousands, except number of shares and per share amounts)

<TABLE>
<CAPTION>

                                       ASSETS                                            June 30,      March 31,
                                       ------                                              1998          1998
                                                                                       -----------  ----------------
                                                                                       (Unaudited)  (See Note Below)
<S>                                                                                      <C>           <C>      
Current assets:
   Cash and cash equivalents ........................................................    $  13,148     $  17,915
   Restricted cash ..................................................................          400           400
   Accounts receivable, net .........................................................       35,054        37,285
   Income tax receivable ............................................................         --             341
   Inventories, net .................................................................       17,384        21,228
   Prepaid media ....................................................................        1,603         1,872
   Prepaid show production ..........................................................        3,604         4,845
   Deferred costs ...................................................................        8,255         4,191
   Prepaid expenses and other current assets ........................................        1,471         2,014
   Deferred income taxes ............................................................        2,835         2,835
                                                                                       -----------    -----------
     Total current assets ...........................................................       83,754        92,926

Property and equipment, net .........................................................       11,193        12,338
Excess of cost over net assets of acquired businesses and other intangible assets, net      35,333        35,877
Other assets ........................................................................        1,388         1,950
                                                                                       -----------    -----------
   Total assets .....................................................................    $ 131,668      $ 143,091
                                                                                       -----------    -----------
                                                                                       -----------    -----------
                       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

   Accounts payable .................................................................    $  21,365     $  21,167
   Accrued expenses .................................................................       23,914        29,598
   Deferred revenue .................................................................          135           115
   Income taxes payable .............................................................           42          --
   Deferred income taxes ............................................................        1,792         1,792
   Current portion of long-term debt and capital lease obligations ..................       31,605        30,812
                                                                                       -----------    -----------
     Total current liabilities ......................................................       78,853        83,484

Long-term debt and capital lease obligations ........................................          200           469
Deferred income taxes ...............................................................        1,043         1,043
Other liabilities ...................................................................        3,646         3,768

Shareholders' equity:

   Preferred stock, $.01 par value; authorized 10,000,000 shares; issued 81,250
   shares Series B convertible preferred stock, and 19,900 and 20,000 shares
   Series D convertible preferred stock, respectively ...............................            1             1
   Common stock, $.01 par value; authorized 75,000,000 shares;
     issued 26,340,981 and 26,262,716 shares, respectively ..........................          263           263
   Additional paid-in capital .......................................................      155,490       156,975
   Retained earnings ................................................................      (89,133)      (85,891)
                                                                                       -----------    -----------
                                                                                            66,621        71,348
   Treasury stock, 887,229 shares, at cost ..........................................       (6,802)       (6,802)
   Notes receivable, officers .......................................................         (684)         (139)
   Foreign currency translation adjustment ..........................................      (11,209)      (10,080)
                                                                                       -----------    -----------
     Total shareholders' equity .....................................................       47,926        54,327
                                                                                       -----------    -----------
     Total liabilities and shareholders' equity .....................................    $ 131,668     $ 143,091
                                                                                       -----------    -----------
                                                                                       -----------    -----------
</TABLE>

Note: The balance sheet at March 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

            See notes to condensed consolidated financial statements.



                                       3
<PAGE>

                           NATIONAL MEDIA CORPORATION
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

                    (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                        Three months ended June 30,
                                                        ---------------------------
                                                            1998         1997
                                                            ----         ----
<S>                                                       <C>         <C>      
Revenues:
  Product sales ......................................    $ 81,745    $  66,021
  Retail royalties ...................................          52         --
  Sales commissions and other revenues ...............       1,370        1,134
                                                          --------    ----------
           Net revenues ..............................      83,167       67,155

Operating costs and expenses:
  Media purchases ....................................      28,471       23,218
  Direct costs .......................................      46,299       41,228
  Selling, general and administrative ................      11,467       14,769
  Write-off of merger related costs ..................         676         --
  Executive compensation .............................      (1,875)        --
  Interest expense ...................................       1,246          625
                                                          --------    ----------
           Total operating costs and expenses ........      86,284       79,840
                                                          --------    ----------
Loss before income taxes .............................      (3,117)     (12,685)
Income taxes .........................................         125          304
                                                          --------    ----------
Net loss .............................................    $ (3,242)    $(12,989)
                                                          --------    ----------
                                                          --------    ----------
Net loss per common share - Basic and Diluted ........    $  (0.11)    $  (0.54)
                                                          --------    ----------
                                                          --------    ----------
Weighted average number of common shares outstanding -
Basic and Diluted ....................................      25,424       23,950
                                                          --------    ----------
                                                          --------    ----------
</TABLE>

            See notes to condensed consolidated financial statements.



                                       4
<PAGE>


                           NATIONAL MEDIA CORPORATION
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                             Three months ended June 30,
                                                                             ---------------------------
                                                                                  1998        1997
                                                                                  ----        ----

<S>                                                                            <C>          <C>      
Cash flows from operating activities:
Net loss ..................................................................    $ (3,242)    $(12,989)
Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization .........................................       1,408        1,614
    Non-cash executive compensation .......................................      (1,875)        --
    Changes in operating assets and liabilities ...........................      (1,922)       9,885
    Other .................................................................         941          (40)
                                                                              ----------   ----------

Net cash used in operating activities .....................................      (4,690)      (1,530)

Cash flows from investing activities:
  Additions to property and equipment .....................................        (123)      (1,268)
                                                                              ----------   ----------
Net cash used in investing activities .....................................        (123)      (1,268)

Cash flows from financing activities:
  Proceeds from long-term debt ............................................       1,500        6,000
  Principal payments on long-term debt and capital lease obligations ......      (1,198)        (322)
  Loan to officer .........................................................        (545)        --
                                                                              ----------   ----------
Net cash (use in) provided by financing activities ........................        (243)       5,678

Effect of exchange rate changes on cash and cash equivalents ..............         289          507
                                                                              ----------   ----------
      Net (decrease) increase in cash and cash equivalents ................      (4,767)       3,387
Cash and cash equivalents at beginning of period ..........................      17,915        4,058
                                                                              ----------   ----------
Cash and cash equivalents at end of period ................................    $ 13,148     $  7,445
                                                                              ----------   ----------
                                                                              ----------   ----------

</TABLE>

            See notes to condensed consolidated financial statements.


                                       5
<PAGE>


                           NATIONAL MEDIA CORPORATION
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
                                  June 30, 1998

1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1998.

New Accounting Standards

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 
No. 131, "Disclosures about Segments of an Enterprise and Related 
Information." ("SFAS No. 131") SFAS No. 131 requires disclosure of certain 
information about operating segments, products and services, geographic areas 
of operations and major customers. The Company is required to adopt this 
statement as of the end of the fiscal year ending March 31, 1999. The Company 
is evaluating the effects of SFAS No. 131 on its financial statement 
disclosures. SFAS No. 131 will have no effect on the Company's results of 
operations, financial condition, capital resources or liquidity.

2.  Per Share Amounts

In 1997, the FASB issued Statement of Financial Accounting Standards No. 128, 
Earnings Per Share ("SFAS 128") which replaced the primary and fully diluted 
earnings per share measures with basic and diluted earnings per share. Basic 
earnings per share is computed on the basis of the weighted average number of 
shares outstanding during the period. Diluted earnings per share is computed 
on the basis of the weighted average number of shares outstanding during the 
period plus the dilutive effect of stock options, warrants, and preferred 
stock. All earnings per share amounts for all periods have been presented, 
and where necessary, restated to conform to the SFAS 128 requirements. In 
computing per share amounts, deemed dividends on preferred stock have been 
deducted from net income to arrive at net income applicable to common 
shareholders.

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):

                                       6

<PAGE>

<TABLE>
<CAPTION>
                                                                Three Months Ended
                                                                     June 30,
                                                              ---------------------
                                                                1998         1997
                                                              --------     --------

<S>                                                           <C>          <C>      
Net (loss) income ........................................    $ (3,242)    $(12,989)
Deemed dividend on convertible preferred stock ...........         438 (1)       -- 
                                                              ---------    ---------
Adjusted net loss for Basic and Diluted earnings per share    $ (2,804)    $(12,989)
                                                              ---------    ---------
                                                              ---------    ---------
Weighted average shares outstanding - Basic and Diluted ..      25,424       23,950
                                                              ---------    ---------
                                                              ---------    ---------
Earnings (loss) per share Basic and Diluted ..............    $  (0.11)    $  (0.54)
                                                              ---------    ---------
                                                              ---------    ---------
</TABLE>


(1) Represents reversal of accrued premium previously recorded on Series C 
Preferred Stock of $690, and recording of current premium earned on Series D 
Preferred Stock of $252.

Convertible preferred stock to purchase 19,356,472 and 937,500 share of 
common stock and stock options and warrants to purchase 11,582,525 and 
8,910,754 shares of common stock for the quarters ended June 30, 1998 and 
1997, respectively, were not included in the computation of diluted earnings 
per share because of losses incurred by the Company in those periods, 
therefore, the effect would be antidilutive. The above amounts do not include 
shares issuable upon conversion of any accrued premium.

Diluted earnings per share for the quarter ended June 30, 1998 does not 
include 9,318,580 shares of common stock which would be issuable in the event 
that the Company was unable to repay the principal due under the principal due 
under the ValueVision loan in cash.

3.  Write-off of Merger Related Costs

In June 1998, the Company wrote-off $676,000 of capitalized costs related to the
termination of a proposed merger of the Company with ValueVision International, 
Inc.

4.  Executive Compensation

The Company had previously recorded $1,875,000 in compensation expense in 
connection with 750,000 options issued to the Company's chief executive 
officer and two other officers in fiscal 1998. These options contained 
provisions that, upon the occurrence of certain triggering events (such as a 
sale or merger of the Company, or a significant investment) by June 30, 1998, 
could have resulted in a reduction in the exercise price of the options. This 
charge was reversed in the first quarter of fiscal 1999 as no triggering 
events occurred as of the June 30, 1998 expiration date.

5.  Income Taxes

The Company recorded income tax expense of approximately $125,000 for the three
months ended June 30, 1998, due to tax liabilities from its profitable Asian and
South Pacific operations. Income tax benefits on domestic and European losses
have been fully reserved until realized.

6.  Comprehensive Income

In April 1998, the Company adopted FASB Statement of Financial Accounting 
Standards No. 130, "Reporting Comprehensive Income." ("SFAS 130")
Comprehensive income is defined as the change in equity from transactions and 
other events and circumstances excluding transactions resulting from 
investments by owners and distributions to owners. For the Company, the 
difference between net income and comprehensive income results from foreign 
currency translation adjustments.

                                       7
<PAGE>

Comprehensive income for the three months ended June 30, 1998 and 1997 is as
follows (in thousands):
<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                               June 30,
                                                                          ------------------
                                                                           1998         1997
                                                                           ----         ----
<S>                                                                    <C>          <C>      
Net loss ..........................................................    $ (3,242)    $(12,989)
Other comprehensive income
    Foreign currency translation adjustments ......................      (1,129)         572
                                                                       ---------    ---------
Total comprehensive income ........................................    $ (4,371)    $(12,417)
                                                                       ---------    ---------
                                                                       ---------    ---------
</TABLE>


7.  Contingent Matters

WWOR Litigation

In March 1997, WWOR-TV filed a breach of contract action in the United States
District Court for New Jersey against one of the Company's operating
subsidiaries alleging that the subsidiary wrongfully terminated a contract for
the purchase of media time, seeking in excess of $1,000,000 in compensatory
damages. The Company is contesting the action. At this stage, the Company cannot
predict the outcome of this matter; however, even if plaintiffs were to succeed
on all of their claims, the Company does not believe that such result would have
a material adverse impact on the Company's results of operations.

Regulatory Matters

As a result of prior settlements with the FTC, the Company has agreed to two 
consent orders. Prior to the Company's acquisition of PRTV, PRTV and its 
Chief Executive Officer, Michael S. Levey, also agreed to a consent order 
with the FTC. Among other things, such consent orders require PRTV and Mr. 
Levey to submit compliance reports to the FTC staff. In June 1996, the 
Company received a request from the FTC for additional information regarding 
certain of the Company's informercials in order to determine whether the 
Company was operating in compliance with the consent orders referred to 
above. The FTC later advised the Company that it believed the Company had 
violated one of the consent orders by allegedly failing to substantiate 
certain claims made in one of its infomercials which it no longer airs in the 
United States. The Company has provided information to the FTC to demonstrate 
substantiation. If the Company's substantiation is deemed to be insufficient 
by the FTC, the FTC has a variety of enforcement mechanisms available to it, 
including, but not limited to, monetary penalties. While no assurances can be 
given, the Company does not believe that any remedies to which it may become 
subject will have a material adverse effect on the Company's results of 
operations or financial condition. The FTC recently notified the Company that 
it had concerns about claims being made in one of the Company's current 
infomercials and also raised questions concerning certain aspects of the 
Company's pricing practices in certain of its current infomercials. The 
Company is responding to the FTC's inquiries.

In addition, in Spring 1997, in accordance with applicable regulations, The
Company notified the CPSC of breakages which were occurring in its Fitness
Strider product. The Company also notified the CPSC of its replacement of
certain parts of the product with upgraded components. The CPSC reviewed the
Company's testing results in order to assess the adequacy of the Company's
upgraded components. The CPSC also undertook its own testing of the product and,
in November 1997, informed the Company that 

                                       8
<PAGE>

the CPSC compliance staff had made a preliminary determination that the Fitness
Strider product and upgraded component present a substantial product hazard, as
defined under applicable law. The Company and the CPSC staff have discussed
voluntary action to address the CPSC's concerns, including replacement of the
affected components. At present, management of the Company does not anticipate
that any action agreed upon, or action required by the CPSC, will have any
material adverse impact on the Company's financial condition or results of
operations. The Company has also been contacted by Australian consumer
protection regulatory authorities regarding the safety and fitness of the
Fitness Strider product and an exercise rider product marketed only in Australia
and New Zealand. At this point, the Company cannot predict whether the outcome
of these matters regarding the Fitness Strider will have a material adverse
impact upon the Company's financial condition or results of operations.

Other Matters

The Company, in the normal course of business, is a party to litigation relating
to trademark and copyright infringement, product liability, contract-related
disputes, and other actions. It is the Company's policy to vigorously defend all
such claims and enforce its rights in these areas. The Company does not believe
any of these actions either individually or in the aggregate, will have a
material adverse effect on the Company's results of operations or financial
condition. The Company has also received letters and telephone calls from
persons purporting to be stockholders of the Company, concerning their stated
intention to commence legal action against the Company and its officers and
directors relating to the Company's financial performance over the recent past
as well as the decline in the market price of the Company's Common Stock. No
specific allegations have been communicated to the Company.

In August 1998, the Company received notice from the New York Stock Exchange 
("NYSE") that the Company did not meet the NYSE's standards for continued 
listing criteria. The NYSE also requested that the Company provide 
information regarding any actions taken or proposed by the Company to restore 
the Company to compliance with the NYSE standards. The Company is formulating 
its response to the NYSE notification and request.

8.  Subsequent Events

On August 13, 1998, the Company announced the execution of a definitive 
agreement pursuant to which an investor group ("Investor Group") is to 
acquire a substantial equity interest in and operational control of the 
Company through a minimum investment of $30.0 million (the "Transaction"). In 
connection with the Transaction, the Company and the Investor Group have 
entered into separate agreements with the holders of the Company's Series D 
Preferred Stock and First Union National Bank (the "Bank"). In addition, the 
Investor Group also entered into an agreement with ValueVision International, 
Inc. ("ValueVision").

The Investor Group will invest $30.0 million, $10.0 million of which was 
utilized to purchase fifty percent of the outstanding Series D Preferred 
Stock, including two-thirds (2/3) of the related outstanding warrants (i.e. 
992,942 warrants) contemporaneously with the execution of the definitive 
agreement. $20.0 million will be utilized to purchase newly issued Series E 
convertible preferred stock (Series E Preferred Stock) which will be 
convertible into shares of the Company's common stock at a fixed conversion 
price of $1.50 per share (subject to adjustment). Based on the aforementioned 
fixed conversion price, the Series E Preferred Stock will be convertible into 
13,333,333 shares of the Company's common stock.

The proceeds of the Series E Preferred Stock will be utilized to repay the 
Company's outstanding indebtedness to its principal lender, and for working 
capital purposes.

                                       9
<PAGE>

It is anticipated that the transaction will be consummated during the last 
calendar quarter of 1998, following shareholder approval.

The Company has, in connection with the definitive agreement, executed an 
agreement with the Bank which waives the Company's prior defaults and 
favorably amends the financial covenants contained in the Loan Agreement. If 
the satisfaction of the Bank facility in connection with the consummation of 
the Transaction does not occur by November 15, 1998, the Bank shall have the 
option to terminate the aforementioned agreement and require full repayment 
of amounts outstanding to it. ValueVision has also signed a letter agreement 
wherein, they have agreed to stand still in regards to any debt covenant 
violations, unless the Bank takes legal action against the Company.

Steve Lehman, a principal member of the Investor Group, has been named acting 
Chief Executive Officer of the Company. In addition, Mr. Lehman and two other 
members of the Investor Group have been appointed to the Company's board of 
directors.

Pursuant to a consulting agreement executed in connection with the definitive 
agreement, Mr. Lehman, Eric Weiss and Dan Yukelson will provide management 
consulting services to the Company through the consummation of the 
transaction.


                                       10
<PAGE>


               CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

This Report contains "forward-looking" statements regarding potential future 
events and developments affecting the business of the Company. Such 
statements relate to, among other things, (i) future operations of the 
Company, including potential strategic transactions including the transaction 
referred to in footnote 8 to the Condensed Consolidated Financial Statements 
and the development of new product sales media; (ii) competition for 
customers for the Company's products; (iii) the uncertainty of developing or 
obtaining rights to new products that will be accepted by the market and the 
timing of the introduction of new products into the market; (iv) the limited 
market life of the Company's products; and (v) other statements about the 
Company or the direct response industry.

Forward-looking statements may be indicated by the words "expects," 
"estimates," "anticipates," "intends," "predicts," "believes" or other 
similar expressions. Forward-looking statements appear in a number of places 
in this Report and include statements regarding the intent, belief or current 
expectations of the Company and its directors and officers with respect to 
numerous aspects of the Company and its business. The Company's ability to 
predict results or the effect of any pending events on the Company's 
operating results is inherently subject to various risks and uncertainties, 
including the risks attendant to competition for products, customers and 
media access; the risks of doing business abroad; the uncertainty of 
developing or obtaining rights to new products that will be accepted by the 
market; the limited market life of the Company's products; and the effects of 
government regulations. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations."

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

General

The Company is engaged in the direct marketing of consumer products, 
primarily through the use of infomercials, in both domestic and international 
markets. Domestically, the Company has historically been dependent on a 
limited number of successful products to generate a significant portion of 
its net revenues. The Company's strategies for future periods are designed to 
reduce the risk associated with relying on a limited number of successful 
products for a disproportionate amount of its revenues, expand the Company's 
leverage of its media expenditures and tailoring the Company's domestic 
operations to more efficiently deal with the cyclical nature of the Company's 
business. These include the more effective utilization and leveraging of its 
global presence and media access, the continued development and marketing of 
innovative products to enhance its existing infomercial programs, and 
engineering the most efficient business model for the Company's future 
operations. International expansion over the last five years has resulted in 
approximately one-half of the Company's revenues being generated from the 
international infomercial marketplace. The Company takes advantage of product 
awareness created by its infomercials and also extends the sales life of its 
products through non-infomercial distribution channels. These include retail 
arrangements as well as continuity sales efforts; and internet marketing, 
among others.

                                       11
<PAGE>

Results of Operations

The following table sets forth operating data of the Company as a percentage of
net revenues for the periods indicated below.


<TABLE>
<CAPTION>
                                               Three Months Ended
                                                    June 30,
                                               ------------------
                                                1998        1997
                                                ----        ----
<S>                                             <C>        <C>   
Statement of Operations Data:
Net revenues                                    100.0%     100.0%
Operating costs and expenses:
    Media purchases                              34.2       34.6
    Direct costs                                 55.7       61.4
    Selling, general and administrative          13.8       22.0
    Write-off of merger related costs             0.8        --
    Executive compensation                       (2.3)       --
    Interest expense                              1.5        0.9
                                               -------     ------
        Total operating costs and expenses      103.7      118.9
                                               -------     ------
Loss before income taxes                         (3.7)     (18.9)
                                               -------     ------
Net loss                                         (3.9)%    (19.3)%
                                               -------     ------
                                               -------     ------
</TABLE>


Three months ended June 30, 1998 compared to June 30, 1997

Net Revenues

Net revenues were $83.2 million for the three months ended June 30, 1998, as
compared to $67.2 million for the three months ended June 30, 1998, an increase
of $16.0 million or 23.8%.

Domestic net revenues for the three months ended June 30, 1998 were $49.3 
million as compared to $26.7 million for the three months ended June 30, 
1997, an increase of $22.6 million or 84.8%. This was primarily due to the 
fact that the Company had a greater number of shows during the current period 
which generated satisfactory sales levels. The current three month period 
included five shows each of which comprised over 15.0% of total domestic 
revenues. The prior year three month period included only two shows each of 
which comprised over 10.0% of total domestic revenues. During the 1997 
period, the Great American Slim Down show generated approximately 46.3% of 
the net domestic revenues. The Red Devil Grill show in the three months ended 
June 30, 1998 generated approximately 18.0% of total domestic revenues.

International net revenues for the three months ended June 30, 1998 were 
$33.9 million as compared to $40.5 million for the three months ended June 
30, 1997, a decrease of $6.6 million or 16.3 %. The majority of this decrease 
was due to the 46.4% decline in revenues earned in the Japanese marketplace, 
of which approximately 7.2% was due directly to currency devaluation. The 
Company believes that this decline was the result of increased competition 
from traditional programming and other infomercial

                                       12
<PAGE>

competitors, as well as the current economic turmoil being experienced in Japan.
In addition, the Company's South Pacific Rim marketplace continued to experience
the negative impact of the economic downturn being experienced throughout that
region, which resulted in a significant decline in consumer spending. The
Company's South Pacific Rim revenues for the three months ended June 30, 1998 as
compared to the three months ended June 30, 1997 decreased approximately $3.9
million or 33.3%. Approximately 20.4% of the decline was a result of currency
devaluation. All of these factors are expected to have a continuing impact on
second quarter revenues in these regions.

Operating Costs

Total operating costs and expenses were $86.0 million for the three months ended
June 30, 1998 as compared to $79.8 million for the three months ended June 30,
1997, a increase of $6.2 million or 7.7%. This was principally due to the
increase in net revenue of 23.8%. This increase was partially offset by a
reduction in direct costs and selling, general and administrative expenses.

Media Purchases

Media purchases totaled $28.5 million for the three months ended June 30, 
1998 as compared to $23.2 million for the three months ended June 30, 1997, 
an increase of $5.3 million or 22.6%. The Company's worldwide ratio of media 
purchases to net revenues remained relatively constant at 34.2% for the three 
months ended June 30, 1998 as compared to 34.6% for the three months ended June
30, 1997. Offsetting a significant reduction in the domestic advertising to 
sales ratio, was a significant increase in the ratio of domestic revenues to 
total worldwide revenues. Domestic revenues typically carry a higher media 
charge than international revenues. In addition, the Company experienced an 
increase in its international advertising to sales ratio, especially in Asia 
and the South Pacific Rim regions. The increase in the ratios in these 
regions was principally due to the decline in revenues. Recent trends 
indicate an increase in international media ratios due to increased 
competition and a trend towards minimum guarantees of media purchases.

Direct Costs

Direct costs consist of the cost of materials, freight, infomercial 
production, commissions and royalties, order fulfillment, in-bound 
telemarketing, credit card authorization, warehousing and profit 
participation payments. Direct costs were $46.3 million for the three months 
ended June 30, 1998 as compared to $41.2 million for the three months ended 
June 30, 1997, an increase of $5.1 million or 12.3%, primarily related to the 
increase in net revenues. As a percentage of net revenues, direct costs were 
55.7% for the three months ended June 30, 1998 as compared to 61.4% for the 
three months ended June 30, 1997. The decrease was a result of a significant 
reduction in domestic direct costs which more than offset an increase in 
international direct costs. Domestically, the Company benefited from 
increased revenue volume which offset the impact of certain fixed costs 
associated with the Phoenix fulfillment facility, thus reducing the cost of 
fulfillment. Production expense as a percentage of revenue declined due to 
the higher success rate of the shows currently being aired. Internationally, 
the increase in direct costs was a result of higher product costs and lower 
sales volume (international revenues declined 16.3% from the comparable 
quarter in fiscal 1998). A significant contributing factor was the economic 
downturn, including the significant currency devaluation, experienced in the 
Far East and South Pacific Rim countries. The Company has not been able to 
adjust its prices to the extent or level required to offset the significant 
deterioration in these countries' currencies. In addition, these poor 
economic conditions negatively impacted consumers' purchasing power in these 
regions, resulting in lower sales volume, and a larger negative impact from 
certain fixed and semi-fixed costs.

                                       13
<PAGE>

Selling, General and Administrative

Selling, general and administrative expenses were $11.5 million for the three
months ended June 30, 1998 as compared to $14.8 million for the three months
ended June 30, 1997, a decrease of $3.3 million or 22.4%. The current period
includes severance expense of approximately $674,000 related to the Company's
continued cost reduction efforts. Selling, general and administrative expenses
as a percentage of net revenues decreased from 22.0% for the three months ended
June 30, 1997 to 13.8% for the three months ended June 30, 1998 due primarily to
the aforementioned cost reductions combined with the 23.8% increase in net
revenues.

Write-Off of Merger Related Costs

Results for the three months ended June 30, 1998 included the write-off of 
capitalized costs of $676,000 related to the termination of a proposed merger 
of the Company with ValueVision International, Inc. The three months ended 
June 30, 1997 included no comparable charges.

Executive Compensation

The Company had previously recorded $1,875,000 in compensation expense in 
connection with 750,000 options issued to the Company's chief executive 
officer and two other officers in fiscal 1998. These options contained 
provisions that, upon the occurrence of certain triggering events by June 30, 
1998, the officers could realize a reduction in the exercise price of the 
options. This charge was reversed in the first quarter of fiscal 1999 as no 
triggering events occurred as of the June 30, 1998 expiration date.

Interest Expense

Interest expense was approximately $1.2 million for the three months ended 
June 30, 1998, compared to $0.6 million for the three months ended June 30, 
1997, an increase of $0.6 million. This increase was primarily due to an 
increase in the Company's average outstanding indebtedness from approximately 
$22.8 million during the quarter ended June 30, 1997 to approximately $31.8 
million during the quarter ended June 30, 1998. In addition, the interest 
rate on the Company's loan from its principal lender was approximately three 
percentage points higher during the current period.

Income Taxes

The Company recorded income tax expense of $125,000 and $304,000 for the three
months ended June 30, 1998 and 1997, respectively, relating to certain Asian
and/or South Pacific Rim profits earned during the respective periods. Income
tax benefits have not been recorded during the quarters on domestic and European
losses. These benefits will be recorded when realized, reducing the effective
tax rate on future domestic and European earnings.

Net Income

                                       14
<PAGE>

The Company incurred a net loss of $3.2 million for the three months ended 
June 30, 1998, compared to a net loss of $13.0 million for the three months 
ended June 30, 1997. The current quarter reflects the improvement in the 
Company's North American and European market operations and the reduction of 
overhead expenses. It also still includes the continued negative impact of the 
economic downturn being experienced in the Far East and South Pacific Rim 
countries on the Company's international revenues and margins.

Liquidity and Capital Resources

The Company's working capital was $4.9 million at June 30, 1998 compared to 
working capital of $9.4 million at March 31, 1998, a decrease of $4.5 
million. The Company met its current period cash needs primarily through its 
use of its existing cash balance, cash flow from borrowings, and liquidation 
of accounts receivable and inventory. Operating activities for the three 
months ended June 30, 1998 resulted in a use of cash of $4.7 million. The 
Company's cash flow from operations in the three months ended June 30, 1998 
was adversely affected by the net loss of approximately $3.2 million.

Consolidated accounts receivable decreased by $2.2 million, or 6.0%, 
primarily due to a decrease in international accounts receivable. This 
decrease was principally due to the 28.2% decrease in European revenues 
during the month of June 1998 as compared to the month of March 1998. 
Consolidated inventories decreased $3.8 million or 18.1% primarily due to a 
30.0% decrease in domestic inventory. This decrease was due to higher sales 
volume. International inventories decreased 10.4% due to currency devaluation 
and management's continued efforts to reduce global inventory levels.

Deferred costs increased from $4.2 million at March 31, 1998 to $8.3 million 
at June 30, 1998 principally due to net the inclusion of $2.3 million of 
deferred costs associated with $3.7 million of net revenues generated in 
connection with the Company's institution of a 30 day free trial offer for 
its Larry North II and Give Me Five products. Revenues related to these 
shipments are recorded upon expiration of the free trial period. The increase 
in the domestic backlog from $5.1 million at March 31, 1998 to $9.0 million 
at June 30, 1998 also contributed to the increase in deferred costs.

On June 2, 1998 the Company announced the termination of its proposed merger 
with ValueVision. As a result, the maximum conversion price of the Company's 
Series D preferred stock and the exercise price of the 1,489,413 warrants 
held by the Series D investors were automatically adjusted to $1.073125 per 
share, 101% of the closing bid price of the Company's Common Stock at said 
date. As a result of the transactions described in footnote 8 to the 
Condensed Consolidated Financial Statements, the Series D conversion price is 
now the fixed conversion price of the Series D shares. Based on such 
conversion price, the Series D preferred stock is convertible into 18,543,972 
shares of the Company's Common Stock, not including shares of the Company's 
Common Stock issuable upon conversion of any accrued premium.

On April 7, 1998, the Company received the final $1.5 million of funds 
available under the $10.0 million loan extended to the Company by ValueVision 
in January 1998. Approximately $545,000 of this amount was used to provide a 
loan to an executive officer of the Company. Such loan is included in the 
shareholder equity section of the balance sheet at June 30, 1998. The 
ValueVision loan is due on any demand made after the earlier of January 1, 
1999 or upon the occurrence of certain triggering events, and, in certain 
cases of default, is convertible into shares of the Company's Common Stock at 
a price of $1.073125 per share.

                                       15
<PAGE>

At June 30, 1998 the Company had $18,997,000 outstanding under its Line and 
$3.0 million outstanding under its Term Loan with the Bank which expires on 
December 31, 1998. The current Loan Agreement contains certain financial 
covenants including tangible net worth and working capital minimums and other 
financial ratios with which the Company must be in compliance on a continuous 
basis. In certain cases, failure to meet required ratios triggers an increase 
in the interest rate of 1.0%. In certain other cases, failure to meet 
required ratios constitutes an event of default. At March 31, 1998, the 
Company's failure to maintain one of its financial ratios within required 
parameters not only triggered an interest rate increase at 1.0% but also 
constituted an event of default. The Company has, in connection with the 
definitive agreement referred to in footnote 8 to the Condensed Consolidated 
Financial Statements, executed an agreement with the Bank which waives the 
Company's prior defaults and favorably amends the financial covenants 
contained in the Loan Agreement. If the satisfaction of the Bank facility in 
connection with the consummation of the Transaction does not occur by 
November 15, 1998, the Bank shall have the option to terminate the 
aforementioned agreement and require full repayment of amounts outstanding to 
it. As a result of the prior defaults, the Company's long term debt has been 
classified as current debt in its June 30, 1998 balance sheet and, effective 
April 1, 1998, the interest rate on the Company's Line and Term Loan became 
prime plus 4.0%. The Line and Term Loan are secured by a lien on 
substantially all of the assets of the Company and its subsidiaries. The 
Company had an overdraft line of approximately $1.0 million with Barclays 
which expired at June 30, 1998.

The Company's international revenues are subject to foreign exchange risk. To 
the extent that the Company incurs local currency expenses that are based on 
locally denominated sales volume (order fulfillment and media costs), this 
exposure is reduced significantly. The Company monitors exchange rate and/or 
forward contracts when appropriate. The Company's ability to hedge may be 
negatively impacted as a result of its current tight cash position and loss 
of its foreign currency exchange line. All forward contracts must now be cash 
collateralized. At June 30, 1998 the Company pledged $400,000 in cash against 
$2.0 million in outstanding future contracts. In the long term, the Company 
has the ability to change prices to a certain extent in a timely manner in 
order to react to major currency fluctuations; thus possibly reducing a 
portion of the risk associated with local currency movements. The Company has 
and is currently further revising its pricing in the Far East and South 
Pacific Rim in an effort to offset some of the recent significant currency 
devaluations in that region. However, the Company still expects that the 
significant currency devaluation and the economic downturn being experienced 
in these regions will have a negative impact on the Company's operating 
results and cash flows in fiscal 1999. Currently, the Company's two major 
foreign currencies are the German deutsche mark and the Japanese yen, each of 
which has been subject to recent fluctuations. In addition, certain other 
currencies utilized by the Company especially the Australian and New Zealand 
dollar have experienced continued devaluation.

The efficient operation of the Company's business is dependent in part on its 
computer hardware, software programs and operating systems (collectively, 
"Programs and Systems"). These Programs and Systems are used in key areas of 
the Company's business, including merchandise purchasing, inventory 
management, pricing, sales, shipping and financial reporting, as well as in 
various administrative functions. The Company has been evaluating its 
Programs and Systems to identify potential Year 2000 compliance issues. These 
actions are necessary to ensure that the Program and Systems will recognize 
and process the Year 200 and beyond. It is anticipated that modification or 
replacement of some of the Company's Programs and Systems will be necessary 
to make such Programs and Systems Year 2000 compliant. The Company is also 
communicating with suppliers, financial institutions, and others to coordinate 
Year 2000 conversion.

Based on present information, the Company believes that it will be able to 
achieve such Year 2000 compliance through a combination of modification of 
some existing Programs and Systems, and the replacement or upgrade of other 
Programs and Systems that are already Year 2000 compliant. However, no 
assurance can be given that these efforts will be successful. The Company 
currently believes that the expenses and capital expenditures associated with 
achieving Year 2000 compliance will be in the range of $1.0 to $2.0 million.

The Company's cash position continues to be pressured as a result of the 
losses incurred in the first quarter of fiscal 1999 and the continued 
downturn in its Asian and South Pacific Rim operations. While benefiting from 
the proceeds of the September 1997 preferred stock sale, the extension of its 
credit facility with its principal lender, the loan from ValueVision, its 
strategy which focuses on cost reductions

                                       16
<PAGE>

and the re-negotiation of a number of its media contracts to terms that are 
more favorable to the Company, the Company's ability to continue as a going 
concern is dependent on its ability to implement certain plans and actions 
designed to rebuild its business, including the continued introduction of 
successful new shows and product sales mediums, to return the Company to 
profitability, to improve its liquidity and to extend its current credit 
facility or obtain new financing to replace its existing facility such as 
would occur pursuant to the pending transactions described above. No 
assurance can be given that any of these actions will be successful.

                                       17
<PAGE>


Part II.   Other Information

Item 1.   Legal Proceedings

The information contained in Note 7 (Contingent Matters) to the Condensed
Consolidated Financial Statements in Part I of this report is incorporated
herein by reference. All of the matters referred to in Note 7 (Contingent
Matters) have been the subject of disclosure in prior reports on Form 10-Q
and/or 10-K.

Other Matters

The Company, in the normal course of business, is a party to litigation relating
to trademark and copyright infringement, product liability, contract-related
disputes, and other actions. It is the Company's policy to vigorously defend all
such claims and enforce its rights in these areas. The Company does not believe
any of these actions either individually or in the aggregate, will have a
material adverse effect on the Company's results of operations or financial
condition. The Company has also received letters and telephone calls from
persons purporting to be stockholders of the Company, concerning their stated
intention to commence legal action against the Company and its officers and
directors relating to the Company's financial performance over the recent past
as well as the decline in the market price of the Company's Common Stock. No
specific allegations have been communicated to the Company.

Item 6.  Exhibits and Reports on Form 8-K

(a)      The following exhibits are included herein:

         10.1 Employment Agreement, dated as of June 2, 1998, between the
              Company and John Sullivan

         27.1 Financial Data Schedule.

(b)      The Company filed the following Current Reports on Form 8-K during the
         three month period ended June 30, 1998:

                 (i) Current Report on Form 8-K, dated April 8, 1998.

                      The Company filed the foregoing Current Report on Form 8-K
                      reporting, under Item 5, the mutual postponement of the
                      shareholder meetings by the Company and ValueVision
                      International, Inc. ("ValueVision") regarding the proposed
                      merger between the Company and ValueVision.

                 (ii) Current Report on Form 8-K, dated June 1, 1998.

                      The Company filed the foregoing Current Report on Form 8-K
                      reporting, under Item 5, the termination of the merger
                      agreement between the Company and ValueVision.


                                       18
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                           NATIONAL MEDIA CORPORATION


Date:  August 14, 1998     /s/ Stephen C. Lehman
                           ---------------------
                               Stephen C. Lehman
                               Acting Chief Executive Officer and Director


Date:  August 14, 1998     /s/ John J. Sullivan
                           ---------------------
                               John J. Sullivan
                               Senior Vice President and Chief Financial Officer


                                       19
<PAGE>


                                  EXHIBIT INDEX

10.1 Employment Agreement, dated as of June 2, 1998, between the Company and
     John Sullivan.

27.1 Financial Data Schedule.


                                       21

<PAGE>

                                                                    EXHIBIT 10.1

Employment Agreement, dated as of June 2, 1998, between the Company and John
Sullivan

EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT ("Agreement") is dated as of June 2, 1998 and
is between NATIONAL MEDIA CORPORATION, a Delaware corporation (the "Company"),
and John J. Sullivan (the "Executive").

         The Company desires to employ the Executive as an executive of the
Company, and the Executive desires to accept such employment, all on the terms
and conditions set forth herein. Accordingly, in consideration of the mutual
covenants and agreements set forth herein, and intending to be legally bound
hereby, the Company and the Executive agree as follows:

         1.  Employment.

                  (a) Duties. The Company shall employ the Executive, on the
terms set forth in this Agreement, as a Senior Vice President. The Executive
accepts such employment with the Company and shall perform and fulfill such
duties as are reasonably assigned to the Executive hereunder by the the Board of
Directors of the Company (the "Board"), or such senior officer as the Board
shall appoint, devoting the Executive's best efforts and professional time and
attention to the performance and fulfillment of the Executive's duties and to
the advancement of the interests of the Company, subject only to the direction,
approval, control and directives of the Board or its designee. Nothing contained
herein shall be construed, however, to prevent the Executive from investing,
trading in or managing, for the Executive's own account and benefit, stocks,
bonds, securities, real estate, commodities or other forms of investments
(subject to law and Company policy with respect to trading in Company
securities), or serving on noncompetitive corporate boards.

                  (b) Place of Performance. In connection with the Executive's
employment by the Company, the Executive shall be based in the Philadelphia, PA
metropolitan area, except for required travel on Company business. The Company
shall furnish the Executive with office space, secretarial assistance and such
other facilities and services as shall be suitable to the Executive's position
and reasonably sufficient and reasonably satisfactory to the Executive for the
performance of the Executive's duties as contemplated hereby.

         2. Term. The Executive's employment under this Agreement shall be
deemed to have commenced as of the date hereof (the "Commencement Date") and
shall, unless sooner terminated in accordance with the provisions hereof,
continue uninterrupted through the eight (8) month anniversary of the Company's
written notice that the Agreement will terminate, effective on such eight (8)
month anniversary. As used herein, the "Term" shall refer to the period expiring
on such eight (8) month anniversary.

         3.  Compensation.

                  (a) Salary. During the Term, the Executive shall be paid an
annual salary (the "Base Salary") payable in installments at such times as the
Company customarily pays its other executive employees (but in any event no less
often than monthly). The Base Salary during the Term hereof shall be paid at the
minimum annual rate of two hundred ten thousand ($210,000) US dollars. The Base
Salary may be increased from time to time. Compensation of the Executive by Base
Salary payments shall not be deemed exclusive and shall not prevent the
Executive from participating in any other compensation or benefit plan of the
Company. The Base Salary payments hereunder shall 
<PAGE>

not in any way limit or reduce any other obligation of the Company hereunder,
and no other compensation, benefit or payment hereunder shall in any way limit
or reduce the obligation of the Company to pay the Base Salary to the Executive.

                  (b) Management Incentive Plan. In addition to the Base Salary
provided for hereunder, the Executive shall participate in such plan of bonus,
incentive or additional compensation as the Company may implement. The level of
such participation shall be at a level commensurate with other Senior Vice
Presidents of the Company, allocated as seen fit by the Compensation Committee,
from time to time in accordance with the terms of such plan. All amounts payable
under this Section 3(b) shall be paid at the customary time and in the customary
manner for payments under each such plan of incentive, bonus or additional
compensation. Executive shall have the right to receive a prorata portion of a
full year bonus for any partial plan year during the Term hereof.

                  (c) Stock Options. The Company may (but shall not be obligated
to) grant to the Executive options ("Options") to purchase shares of the
Company's common stock pursuant to one or more separate additional stock option
agreements made under and subject to the terms of the Company's 1991 Stock
Option Plan, as amended (the "Stock Option Plan"), or any successor plan.

                  (d) Health Insurance and Other Benefits. During the Term, the
Executive shall receive all employee benefits offered by the Company to its
employees, including, without limitation, all pension, profit sharing,
retirement, salary continuation, deferred compensation, disability insurance,
hospitalization insurance, major medical insurance, medical reimbursement,
survivor income, life insurance and any other benefit plan or arrangement
established and maintained by the Company, subject to the rules and regulations
then in effect regarding participation therein. Unless such change is required
by federal, state or local law, the Company shall not make any changes in any
employee benefit plan or arrangement that would result in a disproportionately
greater reduction in the rights of, or benefits to, the Executive compared with
any other senior executive of the Company.

                  (e) Withholding. The Company may withhold from any
compensation, bonus or benefits payable or otherwise conferred by this Agreement
all federal, state, city or other taxes as shall be required pursuant to any law
or governmental regulation or ruling.

         4.  Life Insurance.

                  (a) Generally. At the Executive's option, the Executive may
obtain up to $1,000,000 in face amount of term life insurance to be carried on
the Executive's life. During the Term the Company shall reimburse, on a semi
annual basis, the premiums paid by the Executive for periods covered by the Term
for such insurance upon presentation of invoices duly reflecting such premiums
(subject, however, to the limitations on reimbursement set forth in Section 4(b)
hereof). The Executive shall be the owner of such life insurance policy and
shall have the absolute right to designate the beneficiaries thereunder. The
Executive shall be solely responsible for procuring any such life insurance. The
Company shall have no independent obligation to procure such life insurance or
any other insurance on the life of the Executive (excepting only such insurance
as the Company may offer to its executives and key management employees as part
of its standard benefit package).

                  (b) Limitation on Reimbursement Obligation. Notwithstanding
anything to the contrary contained herein, the Company shall not be obligated to
reimburse premium payments under Section 4(a) hereof or otherwise to the extent
that such payments exceed the rates which would be obtainable for such insurance
on persons of similar age and position who are nonsmokers and otherwise in good
health.

         5. Reimbursement of Expenses. The Executive shall be reimbursed for all
items of travel, entertainment and miscellaneous expenses which the Executive
reasonably incurs in connection with the performance of the Executive's duties
hereunder, provided that the Executive shall submit to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.

         6. Automobile Allowance. During the Term, the Company shall pay the
Executive a monthly automobile allowance of seven hundred ($700) US dollars (the
"Automobile Allowance").
<PAGE>

         7. Vacations. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company from time to time
for its senior executive officers, but not less than three (3) weeks in any
calendar year (prorated in any calendar year during which the Executive is
employed hereunder for less than the entire year in accordance with the number
of days in such calendar year during which the Executive is so employed). The
Executive shall also be entitled to all paid holidays given by the Company to
its executive officers.

         8.  Termination of Employment.

                  (a)  Death or "Total Disability".

                           (1)  Generally.  If the  Executive  should  die 
during the Term, this Agreement shall terminate as of the date of the
Executive's death, and the Company shall have no further obligations hereunder,
except to the extent specifically provided in this Section 8(a). In the event of
the Total Disability (as that term is defined below) of the Executive for one
hundred eighty (180) days in the aggregate during any consecutive nine (9) month
period during the Term, the Company shall have the right to terminate this
Agreement by giving the Executive thirty (30) days prior written notice thereof,
and upon the expiration of such notice period, the Executive's employment under
this Agreement shall terminate. If the Executive shall resume his duties within
thirty (30) days after receipt of such a notice of termination and continue to
perform such duties for four (4) consecutive weeks thereafter, this Agreement
shall continue in full force and effect, without any reduction in Base Salary,
other compensation and other benefits, and the notice of termination shall be
considered null and void and of no effect. Upon termination of this Agreement
under this Section 8(a), the Company shall have no further obligations or
liabilities under this Agreement, except to pay to the Executive's estate or the
Executive, as the case may be, the portion, if any, that remains unpaid of the
Base Salary for the period prior to termination.

                           (2) "Total  Disability"  Defined.  The term "Total 
Disability," as used herein, shall mean a mental or physical condition which, in
the reasonable opinion of an independent, qualified medical doctor selected by
the Company, renders the Executive unable or incompetent to carry out the
material duties and responsibilities of the Executive under this Agreement at
the time the disabling condition was incurred. Notwithstanding the foregoing, if
the Executive is covered under any policy of disability insurance provided under
this Agreement, under no circumstances shall the definition of Total Disability
be different from the definition of that term in such policy.

                  (b)  Dismissal for "Cause".

                           (1)  Generally.  Subject  to the notice  requirements
set forth in this Section 8(b), the Company may dismiss the Executive for Cause
and thereby terminate this Agreement. The Executive shall not be deemed to have
been dismissed for Cause unless and until the Executive has received thirty (30)
days prior written notice of such dismissal and termination of this Agreement
("Notice of Dismissal"). If the Executive does not dispute such determination
within thirty (30) days after receipt of Notice of Dismissal, the Executive
shall not have the remedies provided pursuant to Section 8(f) of this Agreement.

                           (2) "Cause"  Defined.  For purposes of this 
Agreement, the Company shall have "Cause" to terminate this Agreement if the
Executive, in the reasonable judgment of the Company, (i) materially breaches
any of the Executive's agreements, duties or obligations under this Agreement
(including, but not limited to, material failure to perform job duties) and has
not cured or commenced in good faith to cure such breach within thirty (30) days
after receipt of Notice of Dismissal; (ii) embezzles or converts to the
Executive's own use any funds or other material property of the Company (iii)
unreasonably destroys any material property of the Company; (iv) appropriates or
usurps any client, customer, employee or opportunity of the Company; (v) is
convicted of a felony; (vi) is adjudicated as mentally incompetent; or (vii) is
habitually intoxicated or is diagnosed by an independent medical doctor to be
addicted to any unlawful drug, or to any controlled substance which negatively
impacts upon his ability to perform his duties hereunder.

                  (c)  Resignation for "Good Reason".

                           (1)  Generally.  Subject  to the notice  requirements
set forth in this Section 8(c), the Executive may resign for Good Reason and
thereby terminate this Agreement. Except as provided in Section 8(e) of 
<PAGE>

this Agreement, any such termination shall be without liability of either party
to the other. The Executive shall not be deemed to have resigned for Good Reason
unless and until the Company has received thirty (30) days prior written notice
of such resignation and termination of this Agreement ("Notice of Resignation
for Good Reason"). If the Company does not dispute such determination within
thirty (30) days after receipt of Notice of Resignation for Good Reason, the
Company shall not have the remedies provided pursuant to Section 8(f) of this
Agreement.

                           (2) "Good Reason"  Defined.  For purposes of this  
Agreement, the Executive shall have "Good Reason" to resign and terminate this
Agreement upon (i) the failure by the Company to comply with any material
provision of this Agreement which is not cured within thirty (30) days after
receipt of Notice of Resignation for Good Reason, or (ii) any act or omission on
the part of the Company which is intended to be unreasonably prejudicial to the
business or professional reputation or standing of the Executive, unless the
Company reverses such act or omission and rectifies such prejudice to the
Executive's reasonable satisfaction within thirty (30) days after receipt of
Notice of Resignation for Good Reason.

                  (d) Consequences of Termination without Cause or Resignation 
                      for Good Reason.

                           (1) Severance Pay. If the Company  terminates  this 
Agreement without Cause, effective other than at the expiration of the Term, or
the Executive resigns and terminates this Agreement for Good Reason, then the
Company shall pay the Executive, in lieu of other damages, except as
specifically provided herein, an amount equal to his Base Salary (calculated at
the annual rate in effect as of the effective date of termination) for the
remainder of the Term in effect as of the date of termination. Such amount shall
be payable in installments, the amount and frequency of which shall be identical
to the periodic payments of Base Salary then payable to the Executive hereunder,
until such amount is paid in full.

                           (2)  Continuation  of  Benefits.  If  the  Company 
terminates this Agreement without Cause, effective other than at the expiration
of the Term, or the Executive resigns and terminates this Agreement for Good
Reason, then the Company shall maintain in full force and effect for the
continued benefit of the Executive, for the remaining Term, all employee benefit
plans and programs in which the Executive was entitled to participate
immediately prior to the effective date of such termination, provided that the
Executive's continued participation is permissible under the terms and
conditions of such benefit plans and programs. If the Executive's participation
in any benefit plan or program (excluding the Stock Option Plan, the Management
Incentive Plan and any successor plans) is not permissible under the terms
thereof, the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive is entitled to receive under
such plans and programs. At the end of the period of coverage, the Executive
shall have the option to have assigned to the Executive at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company which relates specifically to the Executive. Notwithstanding anything to
the contrary contained in this Agreement, following the effective date of any
such termination (i) the Executive shall no longer be entitled to receive the
Automobile Allowance, (ii) Options unvested as of the date of such termination
shall expire, and (iii) the Executive's continued eligibility to participate in
the Management Incentive Plan (or any successor plan) shall be subject to the
terms and conditions of such plan.

                  (e) Consequences of Resignation Without Good Reason. If
Executive resigns, and thereby terminates this Agreement, without Good Reason,
the Company shall have no obligation to Executive hereunder subsequent to the
effective date of such resignation.

                  (f) Arbitration. If the Executive disputes that Cause exists
for the Executive's dismissal and termination of this Agreement or if the
Company disputes that Good Reason exists for the Executive's resignation and
termination of this Agreement, the disputing party shall serve the other with
written notice of such dispute (a "Dispute Notice") within thirty (30) days
after receipt of the Notice of Dismissal or Notice of Resignation for Good
Reason, as the case may be. Within fifteen (15) days thereafter, the disputing
party shall, in accordance with the Rules of the American Arbitration
Association ("AAA"), file a petition with the AAA for arbitration of the
dispute. Such proceeding shall also determine all other disputes between the
parties relating to the Executive's employment. The parties covenant and agree
that the decision of the AAA shall be final and binding and hereby waive their
rights to appeal therefrom. The costs of such proceeding shall be shared equally
by the Executive and the Company unless an order of the AAA provides otherwise.
Except as otherwise provided in Section 11(a) hereof, each party shall be
responsible for its legal fees incurred in such proceeding.
<PAGE>

         9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise nor, except as provided herein, shall the amount of any
payment provided for in this Agreement be reduced by any compensation earned by
the Executive as the result of the Executive's employment by another employer.

         10.  Restrictive Covenants.

                  (a) Nonsolicitation. During the Covenant Period (as defined
below), the Executive will not solicit for employment any employee or consultant
of the Company or any of its subsidiaries. For purposes of this Agreement, the
"Covenant Period" shall consist of the Term and the one-year period following
the expiration of the Term, but in no event shall the Covenant Period extend for
a period greater than one (1) year following the cessation of any payments
pursuant to Section 3(a) or Section 8 hereof.

                  (b)  Confidential Information.

                           (1) Duty of Care.  The  Executive  shall not,  
directly or indirectly, disclose to any person or entity for any reason or use
for the Executive's own personal benefit any Confidential Information (as
defined in Section 10(b)(3) hereof) either during the Term or thereafter,
despite any early termination of this Agreement, and shall at all times take all
precautions reasonably necessary to protect Confidential Information from loss
or disclosure to third parties.

                           (2) Return of  Confidential  Information.  Upon the
expiration or earlier termination of this Agreement, the Executive shall
promptly return to the Company all documents and other tangible property in the
Executive's possession or control which constitute, contain or incorporate
Confidential Information, whether prepared by the Executive or others.

                           (3)   "Confidential  Information" Defined. For
purposes of this Agreement, "Confidential Information" shall mean all
information, whether in written, electronic or oral form, disclosed or known to
the Executive in the course of the Executive's employment by the Company,
concerning the operations or business of the Company or any of its subsidiaries,
including, without limitation, (i) marketing and promotional plans and
strategies, (ii) information relating to products conceived, developed in the
process of development, (iii) information, including names and addresses,
relating to with licensors, suppliers, producers performers and program
providers, (iv) information relating to the purchase and placement of media,
results of media deployment or media monitoring and tracking systems, (v)
information relating to rates, costs and facilities for telemarketing, order
processing, fulfillment or credit card processing services, (vi) financial
information beyond that which is publicly reported by the Company, and (vii) all
other proprietary and competitively sensitive information. Notwithstanding the
foregoing, Confidential Information shall not include any information which (a)
is or becomes within the public domain through no act of the Executive in breach
of this Agreement, (b) was lawfully in the possession of the Executive without
any restriction on use or disclosure prior to its disclosure hereunder, (c) is
lawfully received from another source subsequent to the date of this Agreement
without any restriction on use or disclosure, (d) is deemed in writing by the
Company no longer to be Confidential Information, or (e) is required to be
disclosed by order of any court of competent jurisdiction or other governmental
authority.

                  (d) Injunctive Relief. The parties hereto agree that any
breach by the Executive of the provisions of Sections 10(a) or (b) hereof will
result in irreparable and continuing damage to the Company (or one or more of
its subsidiaries or successors and assigns) for which there will be no adequate
remedy at law. Accordingly, in the event of any such breach, the Company (or its
subsidiaries, successors or assigns, as the case may be) shall be entitled to
injunctive relief and/or an order for specific performance, without bond, with
respect to such breach. The Executive shall not oppose such relief on the
grounds that there is an adequate remedy at law, and such right shall be
cumulative and in addition to any other remedies at law or in equity (including
monetary damages) which the Company (or its subsidiaries, successors or assigns)
may have on account of such breach.

         11.  Counsel Fees and Indemnification.
<PAGE>

                  (a) Counsel Fees. If it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of the Executive's rights under
this Agreement, including participation in any proceeding contesting the
validity or enforceability of this Agreement and any arbitration proceeding
conducted pursuant to Section 8(f) of this Agreement, the Executive shall be
entitled to recover from the Company the Executive's reasonable attorney's fees
and costs and expenses in connection with the enforcement of the Executive's
rights. No such fees or costs shall be payable, however, if the Company is
successful on the merits.

                  (b) Indemnification. The Company shall indemnify and hold the
Executive harmless to the maximum extent permitted by law against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees incurred by the Executive, in connection with the defense of, or as a
result of, any action or proceeding (or any appeal from any action or
proceeding) in which the Executive is made or is threatened to be made a party
by reason of any act or omission of the Executive in the Executive's capacity as
an officer, director or employee of the Company, regardless of whether such
action or proceeding is one brought by or in the right of the Company, to
procure a judgment in its favor. Expenses (including attorneys' fees) incurred
by the Executive in defending any civil, criminal, administrative, or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the Executive to repay such amount if it shall
ultimately be determined that the Executive is not entitled to be indemnified by
the Company as authorized in this Section 11(b).

         12.  Miscellaneous.

                  (a) Notices. All notices, requests, instructions, consents and
other communications to be given pursuant to this Agreement shall be in writing
and shall be deemed received (i) on the same day if delivered in person, by
same-day courier or by telegraph, telex or facsimile transmission, (ii) on the
next day if delivered by overnight mail or courier, or (iii) on the date
indicated on the return receipt, or if there is no such receipt, on the third
calendar day (excluding Sundays) if delivered by certified or registered mail,
postage prepaid, to the party for whom intended to the following addresses:

         If to the Company:

                  National Media Corporation
                  Eleven Penn Center
                  1835 Market Street - Suite 1100
                  Philadelphia, PA 19103
                  Attention:  Vice Chairman
                  FAX:  215/988-4869

         If to the Executive:

                  John J. Sullivan
                  496 Indian Rock Drive
                  Springfield, PA 19064

The foregoing addresses may be changed at any time by notice given in the manner
herein provided.

                  (b) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersedes all prior negotiations, understandings and agreements,
whether oral or written, between them with respect to such subject matter. Each
party has executed this Agreement without reliance upon any promise,
representation or warranty other than those expressly set forth herein. Each
party acknowledges that (i) it has carefully read this Agreement; (ii) it has
had the assistance of legal counsel of its choosing (and such other
professionals and advisors as it has deemed necessary) in the review and
execution hereof; (iii) the meaning and effect of the various terms and
provisions hereof have been fully explained to it by such counsel; (iv) it has
conducted such investigation, review and analysis as it has deemed necessary to

<PAGE>

understand the provisions of this Agreement and the transactions contemplated
hereby; and (v) it has executed this Agreement of its own free will.

                  (c) Amendment. No amendment of this Agreement shall be
effective unless embodied in a written instrument executed by the Executive and
a duly authorized officer of the Company.

                  (d) Waiver of Breach. The failure of either party hereto at
any time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any provisions hereof or the right of any party
hereto to thereafter enforce each and every provision of this Agreement. No
waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought; and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.

                  (e) Assignability. This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns, provided, however, that the Executive
may not assign this Agreement or any rights hereunder to any person or entity,
other than by the laws of descent and distribution.

                  (f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to conflict of laws principles.

                  (g) Severability. All of the provisions of this Agreement are
intended to be distinct and severable. If any provision of this Agreement is or
is declared to be invalid or unenforceable in any jurisdiction, it shall be
ineffective in such jurisdiction only to the extent of such invalidity or
unenforceability. Such invalidity or unenforceability shall not affect either
the balance of such provision, to the extent it is not invalid or unenforceable,
or the remaining provisions hereof, nor render invalid or unenforceable such
provision in any other jurisdiction.

                  (h) Headings. The headings of sections and subsections have
been included for convenience only and shall not be considered in interpreting
this Agreement.

                  (i) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, and all of
which together shall constitute one and the same Agreement. This Agreement may
be executed and delivered via electronic facsimile transmission with the same
force and effect as if it were executed and delivered by the parties
simultaneously in the presence of one another.

         IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and on behalf of the Company by its duly authorized officer as of the date first
above written.

Attest:                                       NATIONAL MEDIA CORPORATION

                                              By:
- ------------------------------                    ------------------------------
Chairman, Compensation Committee                  Frederick Hammer,
                                                  Chairman of the Board

                                                  ------------------------------
                                                  John J. Sullivan


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<PAGE>
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